Over the last twelve years, the global economy has been in a state of recovery — a very long, slow and uneven recovery — from the Financial Crisis of 2008. In the Global North, stagnation has been the name of the game. In the UK, wages and productivity have both stagnated for the longest time since the nineteenth century. In the US, the average worker has been no better off than they were in 1979 and inequality has reached near-unprecedented levels. Throughout the European periphery, economies pummelled by the troika in the wake of the sovereign debt crisis have only recently begun to return to growth.
The coronavirus crisis has punctuated this period of stagnation by plunging the world economy deep into recession. Already-overvalued stock markets were the first to register the economic impact of the pandemic, plummeting more than during any other recent crisis. But the impact on the real economy will show up soon enough. By design, economic activity in major economies will collapse — this will mean negative growth for at least the next several quarters. Many states are now looking at mass unemployment, falling incomes, and widespread corporate and personal defaults.
2008 was a crisis that emerged from the inherent contradictions of finance-led growth, a mode of accumulation institutionalised by the world’s most powerful states from the 1980s onwards. It collapsed under the weight of its own contradictions — namely, the unsustainability of relying on ever-increasing levels of private borrowing to keep the system afloat. The coronavirus crisis is a fundamentally different beast. While the response to the virus will prove profoundly political, the pandemic itself is a genuine ‘exogenous shock’ — a random, natural event with origins outside of the internal dynamics of the capitalist system.
For the most part, socialists failed to use the political opening generated by the 2008 Financial Crisis to transform the capitalist state. Nearly everywhere, the ruling class has clung onto power — either by absorbing insurgent new movements into fragile coalition governments or by transforming themselves from within, often channelling the anti-systemic pressure generated by the crisis into nationalism and xenophobia. Given the Left’s failure to take advantage of the crisis of 2008, which, on the surface, appeared to confirm socialist arguments about the unsustainability of capitalism, what hope do we have that our response to coronavirus will be any better?
The State Responds
The coronavirus-induced panic seems to have been the push the Conservative Party needed to break with Osborne’s austerity economics once and for all. Rishi Sunak announced a fairly substantial increase in public investment as part of his first budget, along with £30 billion worth of direct government stimulus to deal with the impact of coronavirus and a further £330 billion worth of business loans. The very politicians who spent the last ten years accusing Labour of reckless overspending are today expanding the size of the national debt to levels not seen since the Second World War.
But framing government intervention in the same way would be missing the point. Building railways and bridges is certainly not going to deal with the impact the crisis will have on most working people — and besides, it would mean encouraging yet more building sites to operate in contravention of social distancing guidelines. As James Meadway argued recently in Tribune, what was needed was not a war economy but an anti-war economy. This is one in which economic activity is deliberately curbed. Implementing economic stimulus while economic activity grinds to a halt would be like revving the engine when the handbrake is on — it will only serve to overheat the economy. So the government’s task was historically unique.
Initially, their response was skewed towards the Conservative electoral base. Mortgage holders were quickly provided with a three-month break on their mortgage payments. Small businesses were provided with grants and tax breaks. The financial system was guaranteed state supports. The business class, in other words, was taking a front seat.
But after a huge backlash from the trade union movement, Sunak finally announced some relief for workers. The government agreed to cover 80 per cent of workers’ wages, up to £2,500, to encourage employers to keep staff on as the crisis worsens. And, in a tacit admission that the current welfare system barely provides claimants with enough to survive, Sunak also injected £7 billion into welfare, increasing the Universal Credit standard allowance by £1,000 per month.
But there were huge limitations to Sunak’s spending package. Statutory sick pay remained at just £94.25 — one of the lowest rates of all advanced economies and not nearly enough for many people to pay their rent, let alone their bills and basic living costs. Many key workers forced to continue working during these incredibly tough times — a disproportionate number of whom were living on the breadline before the crisis hit — found themselves off sick with less than £100 per week to live on.
Moreover, the self-employed — including precarious workers in the gig economy — were not covered by Sunak’s income support package. Self-employment has risen substantially since 2008, and exceeded 5 million for the first time before coronavirus — that’s 15 per cent of the entire labour force. Then there were the problems of the furlough scheme itself. Companies had to wait until the end of April to apply and, when they did, they found it much harder to access than had been suggested. Under the scheme it was left entirely up to companies to decide who was furloughed — and no requirement was placed on companies to pay the additional 20 percent of workers’ wages. The end result was many non-essential workers continuing to work and those furloughed facing substantial pay cuts.
Sunak’s interventions are clearly insufficient — but it’s unlikely we have seen the last of them. Business loans — not grants — will simply add to the nation’s huge corporate debt burden, the legacy of a decade of low interest rates and four decades of financialisation. The government will not allow big businesses to fail; they will be bailed out — perhaps even nationalised — if a sustained loss of income pushes them into insolvency. The banks lending to these businesses will also require massive levels of state support. Interest rates will remain at unprecedented lows, and central banks will continue to buy up all kinds of assets to prevent fire sales pushing firms into insolvency — £200 billion is being pumped into the financial system by the Bank of England, on top of nearly £450 billion injected since 2010.
The dramatic expansion in the size of the state associated with the coronavirus outbreak has already triggered a certain amount of angst amongst many on the left. On the one hand, there is widespread relief that the government does seem to be doing something to alleviate the economic impact of the crisis. Sunak’s income support scheme might be sorely lacking from workers’ perspective, but it’s better than the total abdication of responsibility the trade union movement feared. On the other hand, many are wondering what role there is for the Left to play in British politics now that the critique of austerity, which was a core part of Corbynism, is no longer quite so relevant.
The State and the Market
In many ways, this crisis is revealing the inherent weaknesses of the anti-austerity narrative that underpinned Corbynism in the first place. Socialism does not simply mean expanding the size of the capitalist state. It means taking power away from the ruling classes — senior politicians, business owners and financiers — and handing it back to the people. It is not enough to demand a bigger state; the nature of the state, and of all our economic and political institutions, must be fundamentally transformed.
This means fighting for real democracy. But, while the coronavirus crisis is likely to see an expansion of state intervention in the economy, it has coincided with a retreat of democracy — both in the formal political sense and in the form of workers’ power within the economy. At the same time the wiping out of smaller businesses and the concentration of the private sector into vast corporate giants capable of weathering the storm portends another possible future: an era of state-monopoly capitalism.
In The State and Revolution, Lenin discussed the early growth of the welfare state, which was being framed in terms people today might recognise. ‘The erroneous bourgeois reformist assertion that monopoly capitalism or state-monopoly capitalism is no longer capitalism,’ he said, ‘but can now be called “state socialism” and so on, is very common.’
While free marketeers have always railed against government attempts to disrupt the forces of market competition by ‘picking winners’, the line between states and markets has never been as clear as they suggest. States construct markets — they enforce contracts, provide basic services and uphold a monetary system needed for any kind of economic activity to take place — and they do so in a way that favours certain interests over others.
This fact has become increasingly obvious since 2008: quantitative easing and low interest rates have pushed up asset prices and encouraged corporations to take on huge amounts of debt. On the one hand, this has made the wealthy wealthier. On the other hand, it has led to the emergence of thousands of ‘zombie firms’ that should have folded, but which have instead survived due to cheap debt. It is hard to argue in these circumstances that state policy has not interfered with the Darwinian forces of market competition.
But today, Johnson’s government will be forced to take even more significant steps towards picking winners and losers. Many small businesses will struggle over the course of the crisis. Some will collapse. Even larger, better-established firms in certain industries — transport, tourism, retail and hospitality, for example — will find it hard to weather the storm.
Government loans will not be enough to support these firms if they face a sustained lack of income that renders them effectively insolvent — the state would simply be throwing good debt after bad. While many small businesses will be allowed to go under, it is highly unlikely that the government will allow the country’s biggest businesses to fall into bankruptcy, which means many of them will need bailouts. The state may end up becoming a significant shareholder in many of the UK’s largest corporations.
The Rise of Monopolies
Some companies, however, are unlikely to require state support. Many of the huge international conglomerates that emerged during the era of finance-led growth are sitting on piles of cash large enough to weather almost any storm. These firms have generated their reserves by exploiting their monopoly position to extract wealth from their workers, consumers, suppliers, and taxpayers. As well as using poor labour practices, avoiding tax, and gouging their suppliers, monopolies make their supernormal profits by restricting their output, thereby forcing up the price of the goods and services they supply. They use predatory techniques, combined with the natural advantages of economies of scale, to ensure that smaller rivals cannot enter the market to undercut them.
Rather than reinvesting profits in production, today’s biggest corporations use the cash generated from their monopolistic practices to maintain their position by buying up or pricing out smaller rivals, or, increasingly, to invest in financial markets. As the Financial Times reported last year, some of the world’s largest international monopolies are behaving like banks, using their cash to buy up the bonds (debts) of other corporations. The world described by economists — in which household savings are used to finance corporate borrowing — is turned upside down in the era of monopoly capitalism, with households taking on ever greater debts and corporations sitting on ever greater profits. And the links between business and finance go deeper — the investment banks that manage these corporations’ financial affairs, and the investors who own their shares, have made a killing from monopoly capitalism.
As the coronavirus crisis develops, capitalist states all over the world will dramatically expand their economic interventions. Many households and corporations have already become reliant upon the state for their survival. If such a situation is even possible to imagine, the financial system will become yet more dependent on interventions by regulators and central banks. Those large monopolistic corporations that do not find themselves reliant on state support will see their market power rise as their competitors go under. Amazon, Netflix, and some of the social media giants — not to mention healthcare and pharmaceutical companies — are likely to see demand for their products and services increase. An extremely small number of politicians, central bankers, financiers and corporate executives will find themselves in control of a huge share of national — indeed, if these trends are replicated across other countries, global — economic activity.
Marxists have been predicting the emergence of such a situation for over a century now. Marx himself wrote about capitalism’s tendency towards centralisation; he recognised that as production became ever more capital-intensive, a business’ ability to compete would rest upon the ability of its owners to invest in new machinery and technologies. Those larger businesses able to undertake more investment would swallow up their smaller rivals, leading to market concentration. This concentration has been exacerbated with the evolution of the credit system: larger firms are able to access more credit and can therefore invest in technologies that allow them to outcompete their rivals. With the expansion of equity markets, firms gained even more access to finance, and financial institutions also gained control over many large corporations.
For one of the twentieth century’s most prominent Marxian economists, Rudolph Hilferding, the close relationships between large firms and financial institutions associated with the evolution of capitalism would ultimately lead to the emergence of a ‘general cartel’ that would effectively plan capitalist production. Lenin built on his work to analyse how states would come to engage with this general cartel: politicians would use state power to support the interests of big business until the differing interests of the state and capital became difficult to discern.
Competition would not die. Monopolistic firms would continue to engage in limited forms of competition with one another and, crucially for Lenin, states would compete with each other economically, attempting to corner new markets into which domestic capital can expand. This, Lenin argued, was the basis of imperialism, the highest stage of capitalism.
The Highest Stage
Lenin’s theory of imperialism has remained controversial among Marxists — particularly when it comes to how the supernormal profits generated by monopolies impact the general rate of profit. But as the coronavirus escalates it will become harder to argue that, on this point at least, Marx, Hilferding and Lenin were wrong. States and monopolies will expand in both size and power, and they will work in increasingly close collaboration to determine what is produced and when.
Banks and investors are likely to be roped in too, until something approaching Hilferding’s ‘general cartel’ is responsible for planning significant portions of economic activity in most states. While the most powerful states in the global system will survive, and even thrive, in this environment, the weaker ones will struggle. Capital will flee weaker states, potentially leading to widespread defaults, and monopolies based in the Global North will come to dominate ever larger swathes of the global economy.
One of the strange ironies of history is how the death of a phenomenon can sometimes render the ideology that surrounds it more powerful. Most recently, the erosion of the power of the nation state has been associated with a rise in nationalism. Will the ongoing erosion of competition strengthen free market ideology in the same way? Perhaps. But the significant increase in state intervention, and the growth of an oligarchy engaged in constant economic planning might also have another effect: to politicise management of the economy.
One of the defining features of modern capitalism is the rigid ideological separation between politics and economics — states and markets. The fact that state activity is framed as ‘intervention’ demonstrates the degree to which the economy is presented as a self-contained, self-regulating market system. More often than not, we have been warned how such interventions throw the system off course.
But how can this line of reasoning be sustained when business, finance, and the population at large are so dependent upon the state that, if it ceased coordinating activity, the economy might collapse? At the end of this crisis, the management of the economy will be subject to far more political discussion than has been the case for decades. States won’t be able to respond to demands for higher wages, better public services, and relief for the vulnerable by claiming that these things are unaffordable, unworkable, or unsustainable.
The challenge we face is not, then, primarily arguing for more state intervention. Instead, we must concern ourselves with how state power is being used — and who is wielding it. By the end of this crisis, a tiny oligarchy of politicians, central bankers, financiers, and corporate executives will have further expanded their power in the global economy. The challenge for the Left will be to hold them to account.
The only way to do so will be making the case for radically democratising our economies and our states. Publicly owned corporations must be governed by workers, consumers, and representatives of the general public. Our economic institutions — most notably the central bank and the Treasury — must engage ordinary people in their decision-making processes.
When this crisis is over, our collective capacity to expand, manage, and plan economic activity will no longer be up for debate. The question we will face is who is undertaking that economic management, and in whose interests.